Bank has analyzed the accounts receivable of Maxtech, Inc. The bank has chosen eight accounts totaling $876,000 that it will accept as collateral. The bank’s terms include a lending rate set at prime plus 3.3% and a 1.5% commission charge. The prime rate currently is 4.5%.

a. The bank will adjust the accounts by 15% for returns and allowances. It then will lend up to 75% of the adjusted acceptable collateral. What is the maximum amount that the bank will lend to Maxtech?

b. What is Maxtech’s effective annual rate of interest if it borrows $500,000 for 12 months? For six months? For three months?